A question from Yahoo! Answers:
Do you think Gold will reach $1000 per ounce?
By the end of the year, do you think the price of gold will soar to $1,000 per ounce? It’s currently around $585.
OK, let’s put some numbers on the problem. We have an asset with monthly volatility of about 10% and a near-zero expected return in the long run. How likely is it that its price will increase by 70% in five months? If I am doing my math correctly, this would be a 3.17 standard deviation event, meaning that the likelihood of that happening is about 0.08%.
If you built an ARMA model, you could probably get a higher likelihood estimate though… I’d run one out of curiosity, but I don’t have eViews handy…